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Atty. Agaton Uvero THE Department of Finance (DoF), Bureau of Customs (BoC) and the Bureau of Internal Revenue (BIR) issued Joint Order (JO) 1-2010 dated April 5, 2010 to provide new regulations for the assessment of excise tax, duties and VAT on imported vehicles, whether for personal use or for subsequent resale.

The joint order, which included a listing of vehicles (brand and variants) with corresponding published values, was accordingly issued pursuant to existing laws under the National Internal Revenue Code (NIRC), as amended and the Tariff and Customs Code of the Philippines (TCCP), as amended.

Court Order

Several weeks ago, a Makati court issued a Temporary Restraining Order (TRO) barring the three government agencies from implementing the new tax regulation seeking to impose the ‘correct’ duties and taxes on imported vehicles based on their ‘book value’ instead of the current ‘transaction value’ provided under Section 201, TCCP.

In the TRO, the court specifically enjoined the DoF and its attached agencies from enforcing JO 1-2010 following complaints from vehicle importers adversely affected by the new tax policy. Court hearings are currently scheduled to determine if the court will subsequently issue a writ of preliminary injunction.

Opposition to JO No. 1-2010

Based on court records, the complaint cited that JO 1-2010 would cause serious injury on commercial importers of completely built units (CBUs) in so far as it changes the basis of collecting excise tax and the manner of computing duties and VAT. Specifically, the complaint mentions that the new rules expressly contradict the valuation system provided under Section 201, TCCP.

Under the TCCP, the valuation of imported CBUs is based on the ‘transaction value’ of the imported article, or the price paid or payable as agreed between the buyer and the overseas supplier, taking into consideration commercial trading realities allowing adjustments for volume or trade discounts.

Fixed Values for CBUs

JO 1-2010, on the other hand, requires the use of the reference prices such as the US Red Book, KARO [for Europe] and other references for assessing taxes and duties on imported motor vehicles, regardless of the actual price agreed upon by the buyer and seller. In lieu of the ‘transaction value’, the new rules allow BoC to use reference values as provided in the annex of JO 1-2010.

The new rules will effectively increase the duties, excise tax and VAT of almost all imported CBUs, without regard for business realities allowing price fluctuations due to reasons such as change in model, volume discounts or trade promotions.

The complaint mentions there is absolutely nothing in Section 201 of the TCCP that authorizes the use of the reference price as the primary method of valuation. What the law mandates is to assess the price paid or payable for imported goods resulting from the actual transaction between the buyer and the seller as the main basis for valuation.

The Transaction Value system provided under the TCCP provides for a uniform, transparent and predictable scheme for assessing duties and taxes. JO 1-2010 effectively amends the present laws on valuation by mere issuance of implementing rules and regulations.

Trade Discrimination

If implemented, the questioned order will have an adverse impact on the commercial vehicle industry by, wittingly or unwittingly, creating industry ‘winners’ and ‘losers’. While the new tax scheme will result in higher duties and VAT, excise taxes and other charges on imported CBUs, this will mainly have a negative impact only on non-ASEAN imports.

Currently, imported CBUs from ASEAN, mostly from Thailand, are now subject to zero duties. On the other hand, the proposed order will not only apply the existing 30% duty rate but will also increase the tax base for imposing the duty rates on non-ASEAN vehicles. Most Japanese brand vehicles are either locally assembled or sourced from ASEAN. In which case, JO 1-2010 will impact directly on CBUs sourced from Europe, US, Korea and China.

From a government policy perspective, discrimination against non-ASEAN vehicles will result in the promotion of ASEAN-sourced vehicles which are currently subject to zero duty. The immediate impact of such policy change will be the further erosion of government revenue collections from such discrimination against non-ASEAN vehicles. This will further aggravate the estimated PhP340B fiscal deficit facing the new government administration.

The author is the legal director of AFPI, PISFA and PUC. He is a lecturer on logistics, indirect tax and customs, and a trainor of Ateneo Graduate School and BayanTrade Academy on International Supply Chain Management. Please contact agatonuvero@yahoo.com for your comments.

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